Maldives’ economic recovery strong, but high debt major concern

Tourists at Velana International Airport. (Sun Photo/Fayaz Moosa)

The World Bank, in a biannual regional update on Wednesday, said that the Maldivian economy, buoyed by a strong rebound in tourism, is projected to grow at 7.6 percent in 2022 and fully recover to pre-pandemic levels by 2023, but expressed major concern over the country’s high debt levels.

The latest Maldives Development Update, released as a companion piece to the South Asia Economic Focus Reshaping Norms: A New Way Forward, underscores the growing momentum of the Maldivian economy supported by a sustained recovery in tourism, while identifying potential downside risks to growth.

Maldives is expected to see strong economic growth in the medium-term, with real GDP expected to grow by 10.2 percent in 2023.

The World Bank states the Maldives faces vulnerabilities due to its large imports of fossil fuels as share of GDP, a reduction in tourists from Russia and Ukraine, and a high debt burden.

Further increases in global energy prices have the potential to cause an additional fiscal burden, while tourism could be adversely impacted by a persistent reduction in Russian and Ukrainian tourists and new waves of COVID-19 infections.

However, there is some upside potential from increasing tourist arrivals from traditional source countries and new markets, said the World Bank.

World Bank Country Director for Maldives, Faris H. Hadad-Zervos stressed that prudent debt management remains critical to improving fiscal sustainability.

“While the strong rebound in tourism is expected to boost Maldives’ economic recovery, with real GDP growth projected to return to pre-pandemic levels by 2023, prudent debt management remains critical to improving fiscal sustainability,” he said. “A high dependence on tourism and limited sectoral diversification also remains a key structural challenge. We continue to support Maldives in leveraging digital technologies and investing in renewables to achieve a green, resilient, and inclusive development path.”

The latest South Asia Economic Focus Reshaping Norms: A New Way Forward projects the region to grow by 6.6 percent in 2022 and by 6.3 percent in 2023.

The 2022 regional forecast was revised downward by 1.0 percentage point compared to the January projection due in part to the impacts of the war in Ukraine.

The World Bank noted that countries in South Asia are already grappling with rising commodity prices, supply bottlenecks, and vulnerabilities in financial sectors, and the war in Ukraine will amplify the challenges, further contributing to inflation and deteriorating current account balances.